Correlation Between Smith Midland and ReTo Eco

Can any of the company-specific risk be diversified away by investing in both Smith Midland and ReTo Eco at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Smith Midland and ReTo Eco into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Smith Midland Corp and ReTo Eco Solutions, you can compare the effects of market volatilities on Smith Midland and ReTo Eco and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Smith Midland with a short position of ReTo Eco. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smith Midland and ReTo Eco.

Diversification Opportunities for Smith Midland and ReTo Eco

-0.61

Correlation Coefficient

Smith Midland  ReTo Eco

Excellent diversification

The 3 months correlation between Smith and ReTo is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Smith Midland Corp and ReTo Eco Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ReTo Eco Solutions and Smith Midland is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Smith Midland Corp are associated (or correlated) with ReTo Eco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ReTo Eco Solutions has no effect on the direction of Smith Midland i.e., Smith Midland and ReTo Eco go up and down completely randomly.

Pair Corralation between Smith Midland and ReTo Eco

Given the investment horizon of 90 days Smith Midland Corp is expected to generate 1.16 times more return on investment than ReTo Eco. However, Smith Midland is 1.16 times more volatile than ReTo Eco Solutions. It trades about 0.14 of its potential returns per unit of risk. ReTo Eco Solutions is currently generating about 0.1 per unit of risk. If you would invest  4,318  in Smith Midland Corp on September 18, 2024 and sell it today you would earn a total of  452.00  from holding Smith Midland Corp or generate 10.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Smith Midland Corp  vs.  ReTo Eco Solutions

Smith Midland Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Smith Midland Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating forward indicators, Smith Midland exhibited solid returns over the last few months and may actually be approaching a breakup point.

ReTo Eco Solutions

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ReTo Eco Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Smith Midland and ReTo Eco

The main advantage of trading using opposite Smith Midland and ReTo Eco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smith Midland position performs unexpectedly, ReTo Eco can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in ReTo Eco will offset losses from the drop in ReTo Eco's long position.

The idea behind Smith Midland Corp and ReTo Eco Solutions pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.